Boating’s National Bank
Imagine how beneficial it would be if the boating industry had its own bank. Run by management knowledgeable about the idiosyncrasies of the market, manufacturing and retailing, funding needs and areas of opportunity and concern, bank clients could gain ready access and efficiency in obtaining loans for operations, inventory, capital improvements and their customers. Over time, clients would become valued partners, gaining status just as at a private bank.
The reasoning for a boating bank is simply to develop a powerful additional source of financing to be available in both robust and tight credit environments. It isn’t a call to scold current marine lenders who are hamstrung in making retail or commercial loans. Nor is it an alternative to those trying to develop a network of credit unions to become more active in marine. The industry needs to continue working to thaw the credit freeze faced by banks and prospect for new sources.
Had the boating bank been established late last year, it could have petitioned the Federal Deposit Insurance Corp. to help it secure funds at below market rates for boat loans. This is precisely what Deere & Co. orchestrated to secure $2 billion through the FDIC’s Temporary Liquidity Guarantee Program to help customers buy farm equipment. Deere’s credit operations, structured as a savings and loan holding company, qualified for the program. An extra $2 billion available during the winter boat show season could have been a potent tonic to help prospects become buyers.
Providing lending services to product-specific industries is not an original thought. Auto manufacturers, heavy equipment and farm implement makers, motorcycle producers and others have run “captive” financing units for their customers and dealers for decades. Some got swept into the easy credit camp the past few years and made risky loans, then watched their default experience rise and credit ratings slump. Yet before that, these market-focused lending arms both facilitated product stocking and ownership and often were more profitable than the manufacturing operations they supported.
The practice didn’t migrate to marine, probably because there was a ready supply of non-industry affiliated lenders with competitive programs and rates willing to serve the market. This is not the current scenario. As in the past, there is concern by manufacturers unwilling to accept the risk to fund products they don’t make; motor makers don’t want to extend credit to the hull, while boat builders are fearful of underwriting engines. Time to put those concerns aside. Package financing is the only logical and hassle-free method, and traditional lenders have done it for years with generally low risk.
Charter members of boating’s bank will need to be market participants with access to capital markets. The board of directors might consist of motor makers, boat builders, component suppliers, major retailers, service providers and others with a vision that pooling resources will help support a boat sale, regardless of whose brand, engine, electronics or widgets are involved. Other lenders may want to be involved and should be welcome to bring their capital to the new entity. Offshore investors, especially those who see boating growing in their countries, should be identified and invited, along with ancillary industries which benefit when people go boating, such as oil producers or mining concerns.
Cost of establishing the boat bank would likely require initial funding in the $10+ million range; to be fully operational, assets would need to eclipse $1 billion or more. As the bank grows, its services can be extended to more marine businesses.
One of its missions will be, of course, to fund the marine market with competitive retail and wholesale loan offerings and services. It may decide to extend loans to other businesses or recreations. Its ultimate goal will be to create profits and reward the investors. The framework of the new business can be established with advance staff, drawn from firms that specialize in forming banks. Once the critical capital mass is collected and charter approved, the bank can open, then be managed by those recruited with backgrounds in marine lending.
Boating’s bank will be especially helpful in times of tight credit, like today, when it would be more likely to lend as others said “No.” How to get the bank launched? All that’s needed is to find that first industry angel, get him to leave some capital at the deposit window, and challenge his peers to do the same.